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Those familiar with the shell game or three card monte are aware that in
order to keep the game going new players with new money are
required to enter.

In the world of global finance a wide array of iterations of
these games are being played literally each and every trading
day. Who often plays the role of both dealer and participant? The
central banks.

Without these entities involved in the markets, there is no doubt
that interest rates would be substantially higher than current
levels. The critically important questions facing all investors
are the following:

1. When do rating agencies downgrade sovereign debt?
2. How far do the rating agencies go in downgrading the sovereign
debt and over what time period?
3. How much “increasingly worthless” fiat currency will central banks print to
monetize their debt?
4. When do investors just walk away and effectively say, “we are
no longer playing”? In the process, how high will interest rates
rise and how will the sovereign entities fund themselves?

Be mindful that the games currently being played can last a very
long time. Patience is not only a virtue but also a requirement
while navigating this slope along our economic landscape.

Do not look for those covering the markets to aggressively
highlight the risk within point number 4 but rest assured the
risks and implications of failed government bond auctions are
very real. We recently witnessed just such a situation. What
country failed to sell its desired size of government bonds? A
peripheral nation in Europe? Nope. None other than Germany had a
failed government bund auction. Reuters provides further highlights on
this development in writing, Investors Balk at Low German Yields, Bunds
Fall,

German 10-year yields rose 7 basis point to 1.71 percent,
climbing away from the record low of 1.637 percent that was
matched in the previous session. The country’s debt sale failed
to draw bids worth the full amount on offer, though the result
was not as poor as that seen last November when the previous Bund
was launched.

A German 10 year at 1.71%. A 10 year U.S. Treasury at just above
2.0%. Value? In a world in which our central bankers practice
financial repression, the question of value has been rendered
meaningless.

While central bankers play their games, the key question all
investors face is one of finding meaningful returns and
protection. I would maintain that in the world of government
bonds circa 2012 there is little of the former and a
decreasing amount of the latter.

I have no affiliation or business interest with any entity
referenced in this commentary. The opinions expressed are my own.
I am a proponent of real transparency within our markets so that
investor confidence and investor protection can be achieved.